SHANGHAI, Feb 27 (Reuters) - Chinese handset maker
Xiaomi Technology is looking to raise more funds within the next
year or two to boost production and sees revenue in the future
coming from software applications rather than handset sales, the
firm's president told Reuters on Monday.

Xiaomi, whose name literally means millet but refers to a
revolutionary idiom from the early days of the Chinese Communist
Party, was founded in 2010 with a focus on becoming a mobile
Internet company.

The firm's first handset, called MiOne, was released in
October to popular and critical acclaim, its draw being that it
boasts high-end technical specifications, such as a dual-core
processor and an eight mega-pixel camera, at an affordable price
of 1,999 yuan ($320) -- less than half that of similar models
from Apple Inc (AAPL.O) and Samsung Electronics (005930.KS).

Xiaomi racked up more than 300,000 orders for the phone in
less than two days at its launch, and it is now perpetually
back-ordered, pointing to the need to expand production
capacity.

"Manufacturing a phone is very capital intensive; it
requires a large flow of capital," Lin Bin, president of Xiaomi,
said in an interview.

"Within the next one to two years, we will have to select a
time frame to raise and find suitable financing," Lin said.

Xiaomi has raised $131 million in financing so far,
including a B-round investment of $90 million done late last
year that valued the firm at $1 billion. [ID:nL3E7NL0BG]

Xiaomi's chief executive Lei Jun told local media that his
firm was targeting 5 billion yuan ($793.9 million) in revenue
this year on 2 million handsets sold.

"I think that is a very conservative number," Lin said of
that sales target.

FOCUS ON USERS, NOT PROFITS

The low price of the smartphone is due to Xiaomi selling the
MiOne directly to customers via its website, thereby cutting
down on distribution costs, Lin said.

"We are really not looking to make a lot of profit on the
handset itself," Lin added.

Lin was formerly the vice president of Google Inc's (GOOG.O)
China Engineering Research Institute and he also previously
worked at Microsoft Inc (MSFT.O). The plan is for Xiaomi to
monetise its software and applications in the future, he said.

Beijing-based Xiaomi is looking to push out a new phone once
every 9-12 months and will seek to break even on each handset.

"As an early stage start-up, our shareholders do not expect
us to turn profitable any time soon. Our key focus right now is
to continue to polish this product and make it great and
continue to improve the performance of our software," Lin said.

Lin declined to comment on rumours in the market about
Xiaomi's second-generation smartphone.

China, the world's largest mobile phone market, is highly
competitive for handset makers.

With the number of mobile subscribers set to top 1 billion
in China this year, there is cut-throat competition among
Samsung, Apple, Taiwan's HTC Corp (2498.TW) and local firms
Huawei Technologies Co Ltd [HWT.UL] and ZTE Corp (0763.HK)
000063.SZ.

Underscoring that pressure, HTC launched a new series of
smartphone models touting advanced cameras and music functions
at the Barcelona Mobile World Congress on Sunday.
[ID:nL4E8DR3GR]

Low-priced smartphones, such as those provided by ZTE,
Huawei and Xiaomi, have eaten into Apple's share of the market.
In the last quarter, Samsung came out on top, with 24.3 percent
of China's smartphone market, more than three times Apple's
share, data from research firm Gartner showed.
[ID:nL4E8DH0SV ]

Lin said the key to competing with the likes of Apple and
Samsung would be to push out high-quality devices with good
technical specifications, at affordable prices.

"It's about revolution and being able to bring innovation
into a new area. Having this business innovation may
revolutionise the handset industry," Lin said of Xiaomi's name,
based on a Chinese idiom that calls on fighters to have millet
and a rifle on hand to be ready to fight.

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